OPEC+ mulls advancing meeting date, but deeper cuts to have delayed impact

A coronavirus-triggered 10% fall in crude oil prices over the last two weeks has shaken some OPEC countries --- including kingpin Saudi Arabia --- to the realization that waiting until March 5-6, as scheduled, to potentially announce deeper production cuts may be too late.

OPEC officials led by Saudi energy minister Prince Abdulaziz bin Salman on Thursday were discussing dates to possibly reschedule their next meeting, following a statement by Algerian energy minister late Wednesday that moving it up to February was "very likely."

But not all members were convinced yet that an earlier gathering is necessary, sources said.

"We are still working on it," one delegate told S&P Global Platts.

Another said the date was unlikely to be next week.

The spread of the coronavirus, which has sickened more than 7,000 people globally, has led to fears of an economic contraction in China, where the infection started and has killed at least 132. China is the biggest crude importer and is a key market for several OPEC members, and many Chinese refineries have already slashed their crude runs.

But even if OPEC+, a coalition of OPEC and other oil producers, were to move its meeting to next week and agree to rein in more production to prop up prices, the physical oil market would see a delayed impact.

OPEC's core Middle East members typically announce how they have allocated their crude exports to customers between the 10th and 15th of each month.

March loading programs and allocations have already been set, so any OPEC+ decision would affect April shipments at the earliest. Holding the meeting on its scheduled date of March 5-6 would push any changes to the May loading program.

Beyond the physical market practicalities, the politics of agreeing on deeper cuts could be difficult.

OPEC and its 10 allies are one month in to their latest production accord, which commits them to a 1.7 million b/d cut through the end of March. The deal was signed at a highly fractious meeting in December 2019 that saw Angola walk out of the talks at one point and Iraq and Russia play hardball in negotiating their new quotas.

"Saudi Arabia, as expected, is leading by example, but should other producers fail to pull their weight or offer further adjustments, does the kingdom act unilaterally if [the coronavirus impact] escalates and spirals from here on out?," said Mohammad Darwazah, an analyst with Medley Global Advisors.

DATA LAG

Saudi Arabia, OPEC's largest producer and the world's largest crude exporter, has pledged to overcomply with its quota of 10.14 million b/d by holding its output at 9.74 million b/d, but only if other countries hold to their own production caps.

Iraq and Nigeria, two of the biggest quota violators over the past year, have improved their compliance this month, according to preliminary analysis of production data by Platts.

But full details of January production will not be available from all of the six secondary sources used by OPEC to track output, including Platts, until mid-February.

The lack of data would mean Saudi Arabia would have to announce its intentions on its production cut, without full knowledge of whether its OPEC brethren are fully committed.

Any further Saudi Arabian cuts would see it cede more market share, especially in Asia, where competition is fierce and traders say supply options are ample. Russia's Urals grade has grown in popularity with Asian refiners in the past few months in place of some Middle East medium sour crudes.

The foreign ministers of Saudi Arabia and Russia, the largest non-OPEC participant in the OPEC+ coalition, discussed the state of the oil market in a phone call Thursday, according to a statement from the Russian foreign ministry.

AN EYE ON LIBYA

The OPEC+ coalition will also be closely monitoring the standoff in Libya, where a port blockade by the Libyan National Army to pressure the rival UN-backed government has caused crude production to fall 76%.

Production stood at 288,181 b/d on Wednesday, down from 1.22 million b/d before the blockade, Libya's National Oil Corp. said in a statement. NOC Chairman Mustafa Sanalla warned Monday that output could fall as low as 72,000 b/d as storage tanks fill up without an export relief valve.

A resolution to the impasse would allow Libyan production to recover but add to the bearish sentiment in the oil market.

"In this case the voices that are calling for deeper cuts within the OPEC+ production group will get louder," said Tamas Varga, an analyst with brokerage PVM Oil Associates.